Supplemental Disability Insurance: What is it? Do you need it?

Disability insurance offered through your work is a good benefit and a great start to building a financial strategy that protects your ability to earn an income. But if you rely solely on your group long-term disability coverage, the percentage of income replaced can be inadequate. Consider adding supplemental disability insurance coverage. Having your own disability income insurance policy protects a larger percentage of income by filling in the gaps left by your employer’s coverage.

Understanding group long-term disability coverage

When provided by an employer, group long-term disability insurance typically replaces a percentage of your base salary only (no commissions, bonuses or other wages) with a cap on the benefit amount. If the employer pays the premiums, the benefit you receive if you become disabled is taxed. Coverage typically ends when your employment ends. Learn more about the basics of disability insurance.

Consider supplemental disability insurance

Supplemental disability insurance offers individual protection to help fill the gaps left by group long-term disability plans. Adding individually owned disability income insurance to the disability coverage you have through work helps protect more of your income. Supplemental disability insurance replaces a percentage of your complete salary minus other existing disability insurance.

Consider this example to see how it works.

Let’s say you have group long-term disability insurance that pays 60% of your base salary up to a maximum of $10,000. If you earn $225,000 with a bonus, your monthly gross salary is $18,750. If there was no cap, the monthly benefit would be $11,250. But the group long-term disability benefit is capped at $10,000, which covers about 53% of your monthly salary.

If you purchased supplemental disability insurance with a maximum benefit of $5,000, you’d add that amount to your total monthly benefit, which means combined you’d replace 80% of your salary.

Benefits of supplemental disability insurance

• Tax-free benefit amount. When you purchase supplemental disability insurance with after-tax dollars and become disabled, your benefits are received tax free.
• Plan design. Your supplemental disability insurance can offer built-in features and riders typically not found with group long-term disability coverage.
• Employment. Your coverage is portable. If you leave your current employer, there will be no changes to the premium or benefit amounts of your supplemental disability insurance.

Sicknesses and injuries can happen when you least expect it. Adding individual-owned disability income insurance to disability coverage you have through work helps protect more of your income by filling in the gaps. Having supplemental disability insurance equips you to be better prepared financially and protect more of your earnings.

Ameritas can help. Learn more about our individual disability income insurance offerings.